Budget tests Mnangagwa’s reform thrust

Finance and Economic Planning minister Patrick Chinamasa presents the first Budget in the post-Robert Mugabe era today, which will act as measure of President Emmerson Mnangagwa’s commitment to chart a new course for the economy amid rising fiscal deficits.

BY NDAMU SANDU

Government has failed to live within its means since 2013 with fiscal deficits ballooning. This year, the deficit is expected to reach $1,8 billion, nearly half of the $4 billion 2017 budget. Last year the deficit was $1,4 billion.

The deficit has largely been financed by borrowing from the domestic market, thereby crowding out funding to the private sector.

The uncontrolled spending has seen the budget deficit as a percentage of GDP rising to 8,7% last year from 1,2% in 2014. The budget deficit as a percentage of GDP is projected to lower to 8,4% this year

The rising domestic debt has also led to the increase in the public and publicly guaranteed debt is projected to end the year at $13,12 billion, accelerating to $14 billion next year, $14,6 billion in 2019 and $14,8 billion in 2020.

The country’s debt-to-GDP ratio is estimated to exceed the statutory limit of 70%.

Section 11(2) of the Public Debt Management Act requires that the total outstanding public and publicly guaranteed debt as a ratio of GDP should not exceed 70% at the end of any fiscal year, with Treasury warning in the 2018 Budget Strategy paper the threshold would be surpassed “in view of the current borrowing trends from the domestic market”.

The debt-to-GDP ratio was 70% last year and is projected to quicken to 78% in 2017 and then 81% in 2018 before tapering off to 78% and 74% in 2019 and 2020 respectively.

Other than turning to the domestic market for funding, Treasury has also raided central bank’s coffers, with the bank’s lending to the State exceeding the 20% threshold stipulated by the Reserve Bank Act after reaching 27% in 2016.

Analysts say Chinamasa has to restore confidence by laying a strong foundation for the economy. Economist Clive Mphambela said Chinamasa has to address the pervasive issue of restoring the integrity of the multi-currency system by speedily revoking the bond note so that “we revert to the clarity and stability that was assured under proper dollarisation rules”.

He said Chinamasa has to clear the air on government’s strategy for funding the projected deficits in a sustainable way.

“He must tell the nation the measures he will put in place to restore fiscal discipline on the part of Government,” Mphambela said. He said the country required a clear roadmap in re-engagement which “brings back Zimbabwe into the community of nations” which help the economy “to deal with the external debt issues in a sustainable way”.

Mnangagwa has promised reforms in the civil service, saying the business as usual approach is long gone.

An analyst said Chinamasa has to come up with coherent reform proposals for the civil service.

“We must get a sense of government’s policy on the retirement of seniors from the civil service and the re-engineering of the remaining workforce to drive efficiency and productivity in the government,” the analyst said.

He said government has to walk the talk on reforming State-owned enterprises and how it will re-engineer State owned enterprises for them to start “contributing to the new economic trajectory of the country”.